Federal Circuit Denies Petition for Rehearing En Banc in Geren v. Tecom, Inc. Upholding the “Very Little Likelihood of Success on the Merits” Standard for Recovering Costs of Defending a Private Employment Discrimination Suit

October 7, 2009

The U.S. Court of Appeals for the Federal Circuit on October 2, 2009, denied Tecom, Inc.’s petition for rehearing en banc to reconsider the court’s decision in Geren v. Tecom, Inc., 566 F.3d 1037 (2009).  Consequently, government contractors are now left with Tecom’s burdensome standard for determining the allowability of a contractor’s costs of defending a private employment discrimination suit.

Tecom created an untenable test whereby costs incurred in the defense of an employment discrimination suit settled before trial are unallowable unless the contractor can prove that the allegations against it had "very little likelihood of success on the merits."  In doing so, the Federal Circuit extended its erroneous holding in Boeing North American, Inc. v. Roche, 298 F.3d 1274 (2002) to reach private settlements in cases that do not involve any allegations of false claims, false statements, fraud or other misconduct against the United States.  As a result, Tecom‘s standard penalizes a contractor who has made the prudent business decision to settle a private lawsuit by requiring it to satisfy an arduous burden of proof before a contracting officer that has little or no experience determining the merits of various non-government contract claims, such as the Title VII sexual discrimination claim at issue in Tecom.  Accordingly, government contractors are effectively forced to take the expensive and uncertain route of litigating a suit in hopes of a successful result in order to recover legal costs–even when settlement would have been in the best interest of the business and its investors, and even when those costs are expressly allowable by the FAR.  Tecom’s outcome-determination standard discourages settlement, requires contractors to incur additional costs and time (intended to be avoided by settlement) to prove the settled suit had very little likelihood of success, and compels contracting officers to make judgments on issues of law in which they have little or no experience.  As the Tecom standard is applied in practice, it is important for contractors to carefully consider whether they can successfully meet Tecom‘s "very little likelihood of success on the merits" standard before settling employment litigation and seeking recovery of their legal costs from the government.

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding this issue.  Please contact the Gibson Dunn attorney with whom you work, or the following government contracts lawyers in the firm’s Washington, D.C. office: 
Joseph D. West
(202-955-8658, jwest@gibsondunn.com
Karen L. Manos
(202-955-8536, kmanos@gibsondunn.com
Christyne K. Brennan
(202-955-8685, cbrennan@gibsondunn.com)

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